Yesterday morning, the National Association of Realtors reported a 27% drop in existing home sales for July (as compared to June), the largest month-over-month drop in 15 years. At sales that pace, given the number of houses on the market, existing home inventory jumped up to 3.98 million existing homes for sale, a 12.5 month supply of housing (i.e. if all houses currently on the market were purchased at the rate that houses traded hands last month, it would take just over a year to sell them all), the highest inventory by this form of measure in more than a decade. According to NAR, “Raw unsold inventory is still 12.9 percent below the record of 4.58 million in July 2008.”
The report was much worse than economists predicted, with Bloomberg’s median estimate (among the 74 economists asked for a prediction) being an annualized selling rate of 4.65 million homes versus an actual report of 3.83 million (again, an annualized number).
Prices were down 0.2% from the prior month but up 0.7% from a year earlier, showing perhaps that housing prices must fall further in order to get buyers interested.
It’s not all about price, however, when it comes to housing. Two perhaps larger factors are employment and availability of mortgages, both of which are disastrously weak for what should be a point of recovery in a typical economic cycle.
Much demand for existing houses comes from people moving to a new location to go to a new job. With unemployment stuck near 10% and underemployment (including unemployment) near 17%, with entrepreneurs, particularly those who would normally consider starting up a small business, pinned to the sidelines by uncertainty about what Obama and Pelosi’s next business-crushing shoe to drop will be (taxes? cap-and-trade? protectionist legislation?), the chances of job creation improvement in any single digit number of months is bleak. As the L.A. Times notes:
…the nation’s tiniest companies had fewer new hires last month than any time since October. The data are further evidence of a trend that has had many economists worried for months and intensifies concerns that smaller firms may not be robust enough to help lead the country out of its financial slump. The slowdown in hiring is particularly troublesome, experts say, because small businesses typically hire first during a recovery. A reluctance by little companies to add positions could mean that the big firms, which typically lag behind, will add jobs even more gradually.